AI Insights

Tapping into the Hydrogen Market – Can it enable bridge the energy gap?

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This post has been authored by Aniket Raj, the Economic Research Intern at Arthashastra Intelligence

On June 10, India witnessed a record high in power demand reaching 211MW. In the past few months with the economy recovering and temperature soaring, we have witnessed that the mark of 200MW was breached several times. India is the world’s third largest energy-consuming country and 70% of its energy demand is met by coal. The recent coal shortage shows how detrimental this dependence is for India. Despite being the 2ndlargest coal producer and having a stock that could last 100 years, we see a year-after-year shortage of coal supplies.

The recent issue of coal shortage has arisen because of a mismatch in the supply and demand of domestic coal. Until FY 2020, 90% of power sector coal receipts were fulfilled by domestic supply and the rest by import. But in FY 2022, the import numbers dwindled to 3.8% which put pressure on domestic supply. About 79 of the 150 plants that depend on domestic coal had critical stocks till June 15. The other worry about using imported coal was that it will increase the cost of power, as the international price is 5-6 times higher than the domestic supply.

Source: Central Electricity Board; Compilation and Visualization By Arthashastra Intelligence.

The question that comes to our mind after looking at the data is why are we discussing this right now; it was a one-time event that happened during the summers and now things are back to normal. But the energy supply and demand data tell us a different story. If we look at the data, we will find that India is experiencing an increase in household demand every year, and looking at the present economic conditions of India, it is going to lead to a rise in energy deficit. So, what can we do to solve it and make India self-reliant on energy? The answer to this question is green energy. India has set the target of 2070 to reach net zero emissions and is one of the biggest tools to achieve this renewable energy. We all know about solar, wind, and hydro energy and how they can help to achieve this target. But what about Hydrogen?! Hydrogen has the potential to lay the foundation for a new India which can achieve energy Independence. Hydrogen can play multiple roles in our futuristic energy landscape, be it energy storage, long-haul transport, or decarbonization of the industrial sector. Some countries like Japan have become the leading providers of hydrogen automotive.

Creating a hydrogen economy is complex as it poses a chicken and egg problem. The consumer wants lower costs which are only possible with scalability and large investments whereas producers want assured demand before doing this. India’s green hydrogen policy which was released in February does address some of the issues. But the challenges remain on both the supply side and demand sides. One of the major challenges on the demand side is to create initial demand. For this, the government should mandate some mature industries like fertilizers and refining to use hydrogen by administering adequate incentives. The government should also incentivize hydrogen-based products like green cement and green steel. The government could also explore the potential of blending hydrogen with natural gas which can act as a booster for the industry. To tackle the supply side issue, the government needs to increase its R&D so that cost of hydrogen could come at par with fossil fuels. The government could also introduce a viability gap funding scheme to commercialize and scale -up nascent technologies. Also, to ensure affordable financing, electrolyzer manufacturing, and hydrogen product need to be brought under priority sector lending. Also, electrolyzers could come under the production-linked incentive scheme too, so that the tariffs on manufacturing electrolyzers are reduced, which will further help in scalability.

The increasing energy consumption data and our commitment toward net zero emissions give us more reason to tap into this new technology as it has the potential to revolutionize India’s energy ecosystem. Hydrogen is going to play a decisive role in tackling the issue of increased energy consumption in India and it can also help in making our energy sector Aatmanirbhar.

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